This modern day business classic by the author of the best-seller Built to Last, was based on a comprehensive research study of 1,435 companies, whose performance was reviewed over the period of 1965-1995. Eleven companies met the criteria of being an average company that successfully moved to being a great company based on specific criteria.
Those 11 companies were:
• Abbott Laboratories
• Circuit City (which went bankrupt in 2009)
• Fannie Mae (which was involved in a major home mortgage scandal).
• Gillette Company
• Phillip Morris
• Pitney Bowes
• Wells Fargo
In this book, Collins describes from the research study how companies transition from being average to great companies, and also how companies can fail to make the transition. Collins defines greatness according to a number of metrics, including specifically financial performance that exceeded the market average by several times better than the market average over a sustained period of time. He found the main factor for achieving the transition to be a narrow focusing of the company’s resources in their field of competence.
There are so many key points in this book that this review would be very long if I covered everything that impacted me. Instead, I’ll try to summarize.
• Collins introduces the concept of “Level 5 Leaders”. Each of the eleven companies profiled in the book had level 5 leaders. These are leaders who have what he refers to as personal humility and professional will. The term “level 5 leader” refers to an individual who is very humble on a personal level, but who possesses a great deal of drive and desire to succeed, where “success” is not personal, but defined by creating something great that will outlast their time as the company’s leader. These are not high profile leaders whose companies go into decline when they move on. They are diligent and hard working. Collins writes that celebrity leaders (such as Lee Iacocca) often work for a time, but appear to be damaging in the long run.
• He introduces us to the concept of getting the right people on the bus. It’s a concept that as a manager I can relate to. Rather than concern themselves first with the “what” – products, direction, strategy – the companies studied ensured that they had the right people “on the bus” before anything else.
• The author states that one of the key factors in the success of great companies was a series of good decisions. The good decisions flowed from the fact that they all made a consistent and thorough effort to confront reality, internalizing the facts relevant to their market. He states that lofty goals can be good, but you can never lose sight of what the reality is.
• He introduces the “Hedgehog concept”, a parable of a hedgehog and a fox, where the fox knows many things, but the hedgehog knows one big thing. The companies studied were built by hedgehogs, meaning that they were able to focus on one big important thing that made their companies great. He introduces the “three circles” as a way to find an organization’s “hedgehog concept”. The three circles represent:
• What you can make money at
• What you are passionate about
• What you can be the best in the world at
Great companies find themselves at the intersection of these three circles.
• Collins writes that a culture of self-disciple is critical because it creates an environment where people work within a defined system. Since the confines of the system are known, this gives people more freedom to act within that system. Without some sense of discipline, things begin to break down as an organization grows. A helpful approach to discipline is to have a “stop doing” list. We are all familiar with a “To Do” list, but Collins writes that you should stop doing the things that aren’t central to your organization. Organizations should stop doing even the things that might be seen as important, if they are not in their “three circles”.
• Collins contends that technology is an accelerator, but not a differentiator in and of itself, rather something that enhances great companies. Good companies use technology to execute better, but technology won’t save a mediocre company.
• Two other concepts Collins introduces are the “Flywheel” and the “Doom Loop”. A flywheel is a heavy wheel that takes a lot of energy to set in motion. To do so usually requires constant, steady work, rather than a quick acceleration. Great companies’ transformations were like this as well. With everything in place, a lot of hard work resulted slowly and steadily the great companies going faster and faster, with a lot of momentum.
The “Doom Loop” is the vicious circle that unsuccessful organizations fall into, rushing first in one direction and then another, in the hope of creating a sudden break with the past that will propel them to success.
The difference between the two approaches is characterized by the slow, steady and methodical preparation of the flywheel, as compared to the abrupt, radical and often revolutionary, rather than evolutionary changes within the company.
Collins links the findings of Good to Great to the conclusions he reached in his prior book Built to Last which focused on the factors that define companies that survive in the long-term. He considers Good to Great as the prequel to Built to Last, as Good to Great is what has to happen before a company becomes Built to Last.
I listened to the audio book, recorded by Collins a few years after the book was published. He offers helpful insights not in the original book, including the fact that many churches have used the book.
How the Mighty Fall: And Why Some Companies Never Give In by Jim Collins. Published by Jim Collins. 240 pages. 2009.
Collins is best known for his best-selling books Built to Last and Good to Great. I saw Collins speak at a leadership event a few years back. His subject at the leadership event was that of his book How the Mighty Fall. Collins described the book as the “dark side” of Good to Great. In fact, there wasn’t meant to be a book at all. Collins only intended to write an article on how companies fall as he was working on the research for his next major book project. However, he explains that as he got into it the subject, it became more than he had anticipated
and it resulted in this book.
Collins indicated that a key characteristic of the leaders of great companies from Good to Great was that of humility. For those companies that fell on the other hand, the key characteristic was arrogance. In the lecture and book, he discussed five stages companies go through as they decline. They are:
Hubris Born of Success
Undisciplined Pursuit of More
Denial of Risk and Peril
Grasping for Salvation
Capitulation to Irrelevance or Death.
Collins discusses many companies that have fallen that readers will be familiar with, including Zenith, Rubbermaid, Scott Paper, Motorola and Circuit City. He also discusses companies who were falling but recovered, including Hewlett-Packard and Xerox.
Along each stage Collins offers suggestions on what companies should do to avoid falling, such as making sure that they have the right people in the right positions, having good succession plans in place and following good solid management principles, rather than panicking.
Collins had completed his book when the September 2008 financial collapse took place. He does include a helpful appendix on Fannie Mae